FedEx has triggered a wave of pessimism across markets in reaction to its quarterly results that were published on the 15th September.
The Memphis based company stated that its “first quarter results were adversely impacted by global volume softness that accelerated in the final weeks of the quarter. FedEx Express results were particularly impacted by macroeconomic weakness in Asia and service challenges in Europe, leading to a revenue shortfall in this segment of approximately $500 million relative to company forecasts. FedEx Ground revenue was approximately $300 million below company forecasts.”
In other words, lower demand has resulted in lower profits. For the whole company in Q1 Revenue was up US$1.2bn over Q1 2021, at $23.2bn as compared to the same period last year but income fell by $210m to $1.19m. The real action was in the core Air Express business. This saw a collapse in profits from $567m in Q1 last year to $174m in Q1 this year. Not all of FedEx suffered, with FedEx Freight seeing operating income almost doubling to $651m. Nonetheless, with FedEx having halved its expectations for profits for the year, it is not surprising that the mood around the numbers is pessimistic.
In response to the downturn FedEx is cutting costs aggressively, with a reduction in the intensity of air operations even to the extent of parking-up aircraft, reductions in working hours, cuts in staff numbers and the closure of offices. The vigour and extent of these measures imply that FedEx thinks that the downturn may be sustained for several quarters.
It is hard not to view these results as a leading indicator of lower demand and lower prices across much of the logistics sector. Admittedly, FedEx is disproportionately affected by the remarkable fall-back of internet retailing volumes, however the direction of the markets indicates a more broad-based drop in demand. Indeed, FedEx’s CEO, Raj Subramaniam, stated in the media that he thought that the world could be looking at a recession with even US consumer spending slowing.
Supply chain strategists can use GSCi – Ti’s online data platform – to identify opportunities for growth, support strategic decisions, help them stay abreast of industry trends and development, as well as understand future impacts on the industry.
Source: Transport Intelligence, 20th September 2022
Author: Thomas Cullen
GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)